Item 1. Financial Statements
Item 1. FINANCIAL STATEMENTS
DAKTRONICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data) (unaudited)
October 26,
2024 April 27,
2024
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 134,352 $ 81,299
Restricted cash — 379
Accounts receivable, net 111,307 117,186
Inventories 121,582 138,008
Contract assets 44,955 55,800
Current maturities of long-term receivables 1,272 298
Prepaid expenses and other current assets 9,180 8,531
Income tax receivables 144 448
Total current assets 422,792 401,949
Property and equipment, net 73,815 71,752
Long-term receivables, less current maturities 2,537 562
Goodwill 3,194 3,226
Intangibles, net 696 840
Debt issuance costs, net 1,910 2,530
Investment in affiliates and other assets 21,084 21,163
Deferred income taxes 25,858 25,862
TOTAL ASSETS $ 551,886 $ 527,884
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DAKTRONICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (continued)
(in thousands, except per share data) (unaudited)
October 26,
2024 April 27,
2024
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 1,500 $ 1,500
Accounts payable 57,463 60,757
Contract liabilities 62,458 65,524
Accrued expenses 42,811 43,028
Warranty obligations 15,334 16,540
Income taxes payable 531 4,947
Total current liabilities 180,097 192,296
Long-term warranty obligations 23,054 21,388
Long-term contract liabilities 18,330 16,342
Other long-term obligations 5,446 5,759
Long-term debt, net 63,887 53,164
Deferred income taxes 142 143
Total long-term liabilities 110,859 96,796
SHAREHOLDERS' EQUITY:
Preferred Shares, no par value, authorized 50 shares; no shares issued and outstanding
— —
Common Stock, no par value, authorized 115,000 shares; 48,810 and 48,121 shares issued as of October 26, 2024 and April 27, 2024, respectively
70,282 65,525
Additional paid-in capital 52,505 52,046
Retained earnings 154,491 138,031
Treasury Stock, at cost, 1,907 shares as of October 26, 2024 and April 27, 2024, respectively
( 10,285 ) ( 10,285 )
Accumulated other comprehensive loss ( 6,063 ) ( 6,525 )
TOTAL SHAREHOLDERS' EQUITY 260,930 238,792
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 551,886 $ 527,884
See notes to condensed consolidated financial statements.
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DAKTRONICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
Three Months Ended Six Months Ended
October 26,
2024 October 28,
2023 October 26,
2024 October 28,
2023
Net sales $ 208,331 $ 199,369 $ 434,419 $ 431,900
Cost of sales 152,468 145,170 318,858 306,554
Gross profit 55,863 54,199 115,561 125,346
Operating expenses:
Selling 14,704 14,653 30,340 27,582
General and administrative 15,550 10,889 27,273 20,488
Product design and development 9,839 9,221 19,462 17,624
40,093 34,763 77,075 65,694
Operating income 15,770 19,436 38,486 59,652
Nonoperating (expense) income:
Interest (expense) income, net 273 ( 1,326 ) 202 ( 2,207 )
Change in fair value of convertible note 10,304 ( 10,650 ) ( 11,286 ) ( 17,910 )
Other expense and debt issuance costs write-off, net ( 1,164 ) ( 1,303 ) ( 1,999 ) ( 5,282 )
Income before income taxes 25,183 6,157 25,403 34,253
Income tax expense 3,777 3,992 8,943 12,892
Net income $ 21,406 $ 2,165 $ 16,460 $ 21,361
Weighted average shares outstanding:
Basic 46,796 46,030 46,576 45,838
Diluted 51,715 46,705 47,507 46,454
Earnings per share:
Basic $ 0.46 $ 0.05 $ 0.35 $ 0.47
Diluted $ 0.22 $ 0.05 $ 0.35 $ 0.46
See notes to condensed consolidated financial statements.
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DAKTRONICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
(unaudited)
Three Months Ended Six Months Ended
October 26,
2024 October 28,
2023 October 26,
2024 October 28,
2023
Net income $ 21,406 $ 2,165 $ 16,460 $ 21,361
Other comprehensive income (loss):
Cumulative translation adjustments 314 ( 1,190 ) 442 ( 1,442 )
Unrealized gain on available-for-sale securities, net of tax 20 9 20 16
Total other comprehensive income (loss), net of tax 334 ( 1,181 ) 462 ( 1,426 )
Comprehensive income $ 21,740 $ 984 $ 16,922 $ 19,935
See notes to condensed consolidated financial statements.
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DAKTRONICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands)
(unaudited)
Common Stock Treasury Stock
Number Amount Additional Paid-In Capital Retained Earnings Number Amount Accumulated Other Comprehensive Loss Total
Balance as of April 27, 2024 48,121 $ 65,525 $ 52,046 $ 138,031 ( 1,907 ) $ ( 10,285 ) $ ( 6,525 ) $ 238,792
Net loss — — — ( 4,946 ) — — — ( 4,946 )
Cumulative translation adjustments — — — — — — 128 128
Share-based compensation — — 520 — — — — 520
Exercise of stock options 331 3,148 — — — — — 3,148
Employee savings plan activity 71 569 — — — — — 569
Balance as of July 27, 2024 48,523 $ 69,242 $ 52,566 $ 133,085 ( 1,907 ) $ ( 10,285 ) $ ( 6,397 ) $ 238,211
Net income — — — 21,406 — — — 21,406
Cumulative translation adjustments — — — — — — 314 314
Unrealized gain on available-for-sale securities, net of tax — — — — — — 20 20
Share-based compensation — — 530 — — — — 530
Common stock issued upon vesting of Restricted Stock Units 141 — — — — — — —
Exercise of stock options 183 1,040 — — — — — 1,040
Shares withheld for taxes on Restricted Stock Unit issuances ( 37 ) — ( 591 ) — — — — ( 591 )
Balance as of October 26, 2024 48,810 $ 70,282 $ 52,505 $ 154,491 ( 1,907 ) $ ( 10,285 ) $ ( 6,063 ) $ 260,930
See notes to condensed consolidated financial statements.
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DAKTRONICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(continued)
(in thousands)
(unaudited)
Common Stock Treasury Stock
Number Amount Additional Paid-In Capital Retained Earnings Number Amount Accumulated Other Comprehensive Loss Total
Balance as of April 29, 2023 47,396 $ 63,023 $ 50,259 $ 103,410 ( 1,907 ) $ ( 10,285 ) $ ( 5,529 ) $ 200,878
Net income — — — 19,196 — — — 19,196
Cumulative translation adjustments — — — — — — ( 252 ) ( 252 )
Unrealized gain on available-for-sale securities, net of tax — — — — — — 7 7
Share-based compensation — — 557 — — — — 557
Exercise of stock options 11 46 — — — — — 46
Employee savings plan activity 211 615 — — — — — 615
Balance as of July 29, 2023 47,618 $ 63,684 $ 50,816 $ 122,606 ( 1,907 ) $ ( 10,285 ) $ ( 5,774 ) $ 221,047
Net income — — — 2,165 — — — 2,165
Cumulative translation adjustments — — — — — — ( 1,190 ) ( 1,190 )
Unrealized gain on available-for-sale securities, net of tax — — — — — — 9 9
Share-based compensation — — 534 — — — — 534
Exercise of stock options 161 959 — — — — — 959
Shares withheld for taxes on Restricted Stock Unit issuances ( 37 ) — ( 303 ) — — — — ( 303 )
Common stock issued upon vesting of Restricted Stock Units 188 — — — — — — —
Balance as of October 28, 2023 47,930 $ 64,643 $ 51,047 $ 124,771 ( 1,907 ) $ ( 10,285 ) $ ( 6,955 ) $ 223,221
See notes to condensed consolidated financial statements.
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DAKTRONICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Six Months Ended
October 26,
2024 October 28,
2023
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 16,460 $ 21,361
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 9,794 9,494
(Gain) loss on sale of property, equipment and other assets ( 40 ) 101
Share-based compensation 1,050 1,091
Equity in loss of affiliates 1,832 1,461
(Recoveries of) provision for doubtful accounts, net ( 152 ) 240
Deferred income taxes, net 13 20
Non-cash impairment charges — 654
Change in fair value of convertible note 11,286 17,910
Debt issuance costs write-off — 3,353
Change in operating assets and liabilities 22,577 ( 11,374 )
Net cash provided by operating activities 62,820 44,311
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment ( 10,466 ) ( 9,226 )
Proceeds from sales of property, equipment and other assets 124 52
Purchases of equity and loans to equity investees ( 2,041 ) ( 2,899 )
Net cash used in investing activities ( 12,383 ) ( 12,073 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on notes payable — 40,000
Payments on notes payable ( 1,358 ) ( 18,125 )
Principal payments on long-term obligations ( 206 ) ( 204 )
Debt issuance costs — ( 6,454 )
Proceeds from exercise of stock options 4,188 1,005
Tax payments related to RSU issuances ( 591 ) ( 303 )
Net cash provided by financing activities 2,033 15,919
EFFECT OF EXCHANGE RATE CHANGES ON CASH 204 139
NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH 52,674 48,296
CASH, CASH EQUIVALENTS AND RESTRICTED CASH:
Beginning of period 81,678 24,690
End of period $ 134,352 $ 72,986
Supplemental disclosures of cash flow information:
Cash paid for:
Interest $ 1,770 $ 1,027
Income taxes, net of refunds 12,910 11,874
Supplemental schedule of non-cash investing and financing activities:
Purchases of property and equipment included in accounts payable 2,343 1,443
Contributions of common stock under the ESPP 569 614
See notes to condensed consolidated financial statements.
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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollar and share amounts in thousands, except per share data)
(unaudited)
Note 1. Basis of Presentation
Daktronics, Inc. and its subsidiaries (the “Company”, “Daktronics”, “we”, “our”, or “us”) are industry leaders in designing and manufacturing electronic scoreboards, programmable display systems and large screen video displays for sporting, commercial and transportation applications.
In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting of normal recurring adjustments) necessary to fairly present our financial position, results of operations and cash flows for the periods presented. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP") requires management to make estimates and assumptions affecting the reported amounts of assets and liabilities, revenues and expenses, and the disclosure of contingent liabilities. Estimates used in the preparation of the unaudited consolidated financial statements include, among others, revenue recognition, future warranty expenses, the fair value of long-term debt, the fair value of investments in affiliates, income tax expenses, and stock-based compensation. Due to the inherent uncertainty involved in making estimates, actual results in future periods may differ from those estimates.
Certain information and disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted. The balance sheet as of April 27, 2024 has been derived from the audited financial statements at that date, but it does not include all the information and disclosures required by GAAP for complete financial statements. These financial statements should be read in conjunction with our financial statements and notes thereto for the fiscal year ended April 27, 2024, which are contained in our Annual Report on Form 10-K previously filed with the Securities and Exchange Commission ("SEC"). The results of operations for the interim periods presented are not necessarily indicative of results that may be expected for any other interim period or for the full fiscal year.
Daktronics, Inc. operates on a 52- or 53-week fiscal year, with our fiscal year ending on the Saturday closest to April 30 of each year. When April 30 falls on a Wednesday, the fiscal year ends on the preceding Saturday. Within each fiscal year, each quarter is comprised of 13-week periods following the beginning of each fiscal year. In each 53-week fiscal year, an additional week is added to the first quarter, and each of the last three quarters is comprised of a 13-week period. The six months ended October 26, 2024 and October 28, 2023 contained operating results for 26 weeks.
There have been no material changes to our significant accounting policies and estimates as described in our Annual Report on Form 10-K for the fiscal year ended April 27, 2024.
Cash and cash equivalents and restricted cash
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the condensed consolidated balance sheets that sum to the totals of the same amounts shown in the condensed consolidated statements of cash flows. Restricted cash consists of cash and cash equivalents held in bank deposit accounts to secure certain issuances of foreign bank guarantees.
October 26,
2024 October 28,
2023 April 27,
2024
Cash and cash equivalents $ 134,352 $ 64,740 $ 81,299
Restricted cash — 8,246 379
Total cash, cash equivalents, and restricted cash shown in the condensed consolidated statements of cash flows $ 134,352 $ 72,986 $ 81,678
We have foreign currency cash accounts to operate our global business. These accounts are impacted by changes in foreign currency rates. Of our $ 134,352 in cash and cash equivalent balances as of October 26, 2024, $ 123,981 were denominated in United States dollars, of which $ 5,947 were held by our foreign subsidiaries. As of October 26, 2024, we had an additional $ 10,371 in cash balances denominated in foreign currencies, of which $ 9,495 were maintained in accounts of our foreign subsidiaries.
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Recent Accounting Pronouncements
Accounting Standards Adopted
There are no significant Accounting Standard Updates ("ASU") issued that were adopted in the six months ended October 26, 2024.
Accounting Standards Not Yet Adopted
In November 2023, the Financial Accounting Standards Board ("FASB") issued ASU 2023-07, Segment Reporting (Topic 280), Improvements to Reportable Segment Disclosures ("ASU 2023-07"). ASU 2023-07 requires enhanced disclosures about significant segment expenses. The Company is required to adopt ASU 2023-07 for its annual reporting in fiscal year 2025 and for interim period reporting beginning in the first quarter of fiscal year 2026 on a retrospective basis. Early adoption is permitted. We are currently evaluating the impact of ASU 2023-07 on our segment disclosures.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740) Improvements to Income Tax Disclosures ("ASU 2023-09"). ASU 2023-09 requires the disclosure of specified additional information in its income tax rate reconciliation and to provide additional information for reconciling items that meet a quantitative threshold. ASU 2023-09 will also require disaggregation of income taxes paid disclosure by federal, state and foreign taxes, with further disaggregation required for significant individual jurisdictions. The Company is required to adopt this guidance for its annual reporting in fiscal year 2026 on a prospective basis. Early adoption and retroactive application are permitted. We are currently evaluating the impact of ASU 2023-09 on our income tax disclosures.
In November 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40) ("ASU 2024-03"), requiring disclosure in the notes to the financial statements for specified information about certain costs and expenses. ASU 2024-03 is effective for annual periods beginning after December 15, 2026, and interim periods beginning after December 15, 2027; however early adoption is permitted and can be applied either prospectively or retrospectively. We are currently evaluating the impact of ASU 2024-03 on our expense disaggregation disclosures.
Note 2. Investments in Affiliates
We use the equity method to account for investments in companies if our investment provides us with the ability to exercise significant influence over operating and financial policies of the investee. Our judgment regarding the level of influence over each equity method investee includes considering key factors such as our ownership interest, representation on the board of directors, participation in policy-making decisions, other commercial arrangements, and material intercompany transactions. We evaluated the nature of our investment in affiliates of Xdisplay TM ("XDC"), which is developing micro-LED mass transfer expertise and technologies, and Miortech (dba Etulipa), which is developing low power outdoor electrowetting technology. Our ownership in Miortech was 55.9 percent and in XDC was 16.4 percent as of October 26, 2024. The aggregate amount of our investments accounted for under the equity method was $ 257 and $ 1,813 as of October 26, 2024 and April 27, 2024, respectively.
We determined both entities are variable interest entities, and based on management's analysis, we determined that Daktronics is not the primary beneficiary because the power criterion was not met. Therefore, as Daktronics does not have control, but is able to exercise significant influence, the investments in Miortech and XDC are accounted for under the equity method. Our proportional share of the respective affiliates' losses is included in the "Other expense and debt issuance costs write-off, net" line item in our Condensed Consolidated Statements of Operations. For the three and six months ended October 26, 2024, our share of the losses of our affiliates was $ 901 and $ 1,832 as compared to $ 771 and $ 1,461 for the three and six months ended October 28, 2023.
We review our investments in affiliates for impairment indicators. There were no impairments recorded during the three and six months ended October 26, 2024 compared to an impairments of $ 212 and $ 654 during the three and six months ended October 28, 2023.
We purchased services for research and development activities from our equity method investees. The total of these related party transactions for the six months ended October 26, 2024 and October 28, 2023 was $ 497 and $ 123 , respectively, which is included in the "Product design and development" line item in our condensed consolidated statements of operations. A portion of our activities remain unpaid those amounts were $ 134 and $ 14 for the six months ended
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October 26, 2024 and October 28, 2023, respectively, which is included in the "Accounts payable" line item in our condensed consolidated balance sheets.
We also have advanced our affiliates funds under convertible and promissory notes (collectively, the "Affiliate Notes"). We advanced $ 2,049 in the six months ended October 26, 2024 and $ 5,050 in fiscal year 2024 under the Affiliate Notes. The total outstanding amount of the Affiliate Notes was $ 16,396 and $ 14,241 as of October 26, 2024 and April 27, 2024, respectively. The balances of the Affiliate Notes are included in the "Investments in affiliates and other assets" line item in our condensed consolidated balance sheets. We evaluate the Affiliate Notes for impairment and credit losses. As of October 26, 2024 and April 27, 2024, no provision for losses was recorded, as management's analysis concluded the Affiliate Notes were collectable or realizable based on the rights of these instruments and related valuation of each affiliate.
The Affiliate Notes balance combined with the investment in affiliates balance totaled $ 16,653 and $ 16,054 as of October 26, 2024 and April 27, 2024, respectively.
Note 3. Earnings Per Share ("EPS")
We follow the provisions of Accounting Standards Codification 260, Earnings Per Share ("ASC 260"), where basic earnings per share ("EPS") is computed by dividing income attributable to common shareholders by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution which may occur if securities or other obligations to issue common stock were exercised or converted into shares of common stock or resulted in the issuance of shares of common stock which share in our earnings.
The following is a reconciliation of the net income and common share amounts used in the calculation of basic and diluted EPS for the three and six months ended October 26, 2024 and October 28, 2023:
Three Months Ended Six Months Ended
October 26,
2024 October 28,
2023 October 26,
2024 October 28,
2023
Earnings per share - basic
Net income $ 21,406 $ 2,165 $ 16,460 $ 21,361
Weighted average shares outstanding 46,796 46,030 46,576 45,838
Basic earnings per share $ 0.46 $ 0.05 $ 0.35 $ 0.47
Earnings per share - diluted
Net income $ 21,406 $ 2,165 $ 16,460 $ 21,361
Change in fair value of convertible note ( 10,304 ) — — —
Interest expense on convertible note, net of tax 418 — — —
Diluted net income $ 11,520 $ 2,165 $ 16,460 $ 21,361
Weighted average common shares outstanding 46,796 46,030 46,576 45,838
Dilution associated with stock compensation plans 882 675 931 616
Dilution associated with convertible note 4,037 — — —
Weighted average common shares outstanding, assuming dilution 51,715 46,705 47,507 46,454
Diluted earnings per share $ 0.22 $ 0.05 $ 0.35 $ 0.46
Options outstanding to purchase 51 and 521 shares of common stock with a weighted average exercise price of $ 10.44 and $ 10.76 for the three months ended October 26, 2024 and October 28, 2023, respectively, were not included in the computation of diluted EPS because the effects would be anti-dilutive.
Options outstanding to purchase 114 shares of common stock with a weighted average exercise price of $ 12.10 for the six months ended October 26, 2024 and 1,039 shares of common stock with a weighted average exercise price of $ 9.53 for the six months ended October 28, 2023 were excluded from the computation of diluted EPS because the effects would be anti-dilutive.
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During the three months ended October 26, 2024, 4,037 potential shares of common stock issuable upon conversion of the secured convertible note in the original principal payment of $ 25,000 due on May 11, 2027 issued by the Company to Alta Fox Opportunities Fund, LP (the "Convertible Note"), were included in the computation of diluted EPS. For the six months ended October 26, 2024, 4,037 potential common shares issuable upon conversion of the Convertible Note were not included in the computation of diluted EPS, as the effect would be anti-dilutive.
During the three and six months ended October 28, 2023, 4,051 and 3,806 , respectively, potential shares of common stock issuable upon conversion of the Convertible Note were not included in the computation of diluted EPS, as the effect would be anti-dilutive.
Note 4. Revenue Recognition
Disaggregation of revenue
In accordance with ASC 606-10-50, we disaggregate revenue from contracts with customers by the type of performance obligation and the timing of revenue recognition. We determine that disaggregating revenue in these categories achieves the disclosure objective to depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors and to enable users of financial statements to understand the relationship to each reportable segment.
The following table presents our disaggregation of revenue by segments:
Three Months Ended October 26, 2024
Commercial Live Events High School
Park and Recreation
Transportation International Total
Type of performance obligation
Unique configuration $ 9,506 $ 57,289 $ 8,284 $ 13,046 $ 4,392 $ 92,517
Limited configuration 27,838 11,640 36,246 6,924 11,455 94,103
Service and other 6,095 8,278 3,541 1,508 2,289 21,711
$ 43,439 $ 77,207 $ 48,071 $ 21,478 $ 18,136 $ 208,331
Timing of revenue recognition
Goods/services transferred at a point in time $ 30,728 $ 15,167 $ 36,523 $ 7,820 $ 12,919 $ 103,157
Goods/services transferred over time 12,711 62,040 11,548 13,658 5,217 105,174
$ 43,439 $ 77,207 $ 48,071 $ 21,478 $ 18,136 $ 208,331
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Six Months Ended October 26, 2024
Commercial Live Events High School
Park and Recreation
Transportation International Total
Type of performance obligation
Unique configuration $ 11,768 $ 151,607 $ 18,918 $ 27,582 $ 7,006 $ 216,881
Limited configuration 54,138 19,934 71,394 13,533 19,527 178,526
Service and other 11,732 14,274 5,765 2,853 4,388 39,012
$ 77,638 $ 185,815 $ 96,077 $ 43,968 $ 30,921 $ 434,419
Timing of revenue recognition
Goods/services transferred at a point in time $ 60,241 $ 25,917 $ 71,902 $ 15,381 $ 22,060 $ 195,501
Goods/services transferred over time 17,397 159,898 24,175 28,587 8,861 238,918
$ 77,638 $ 185,815 $ 96,077 $ 43,968 $ 30,921 $ 434,419
Three Months Ended October 28, 2023
Commercial Live Events High School
Park and Recreation
Transportation International Total
Type of performance obligation
Unique configuration $ 9,511 $ 47,496 $ 11,539 $ 11,047 $ 9,993 $ 89,586
Limited configuration 28,752 13,771 36,277 8,469 7,302 94,571
Service and other 4,190 6,943 1,126 727 2,226 15,212
$ 42,453 $ 68,210 $ 48,942 $ 20,243 $ 19,521 $ 199,369
Timing of revenue recognition
Goods/services transferred at a point in time $ 29,379 $ 15,390 $ 34,722 $ 8,592 $ 7,919 $ 96,002
Goods/services transferred over time 13,074 52,820 14,220 11,651 11,602 103,367
$ 42,453 $ 68,210 $ 48,942 $ 20,243 $ 19,521 $ 199,369
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Six Months Ended October 28, 2023
Commercial Live Events High School
Park and Recreation
Transportation International Total
Type of performance obligation
Unique configuration $ 22,429 $ 124,043 $ 26,658 $ 23,631 $ 18,783 $ 215,544
Limited configuration 58,665 23,732 76,614 16,536 12,541 188,088
Service and other 8,242 12,434 1,904 1,445 4,243 28,268
$ 89,336 $ 160,209 $ 105,176 $ 41,612 $ 35,567 $ 431,900
Timing of revenue recognition
Goods/services transferred at a point in time $ 60,397 $ 26,167 $ 73,803 $ 16,859 $ 13,762 $ 190,988
Goods/services transferred over time 28,939 134,042 31,373 24,753 21,805 240,912
$ 89,336 $ 160,209 $ 105,176 $ 41,612 $ 35,567 $ 431,900
See "Note 5. Segment Reporting" for a disaggregation of revenue by geography.
Contract balances
Contract assets represent revenue recognized in excess of amounts billed and include unbilled receivables. Unbilled receivables, which represent an unconditional right to payment subject only to the passage of time, are reclassified to accounts receivable when they are billed according to the contract terms. Contract liabilities represent amounts billed to customers in excess of revenue recognized to date.
The following table reflects the changes in our contract assets and liabilities:
October 26,
2024 April 27,
2024 Dollar
Change Percent
Change
Contract assets $ 44,955 $ 55,800 $ ( 10,845 ) ( 19.4 ) %
Contract liabilities - current 62,458 65,524 ( 3,066 ) ( 4.7 )
Contract liabilities - noncurrent 18,330 16,342 1,988 12.2
The changes in our contract assets and contract liabilities from April 27, 2024 to October 26, 2024 were due to the timing of billing schedules and revenue recognition, which can vary significantly depending on the contractual payment terms and the seasonality of the sports markets. We had no significant impairments of contract assets for the six months ended October 26, 2024.
For service-type warranty contracts, we allocate revenue to this performance obligation, recognize the revenue over time, and recognize costs as incurred. Earned and unearned revenues for these contracts are included in the "Contract assets" and
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"Contract liabilities" line items of our condensed consolidated balance sheets. Changes in unearned service-type warranty contracts, net were as follows:
October 26,
2024
Balance as of April 27, 2024 $ 32,159
New contracts sold 26,007
Less: reductions for revenue recognized ( 21,737 )
Foreign currency translation and other ( 142 )
Balance as of October 26, 2024 $ 36,287
Contracts in progress identified as loss contracts as of October 26, 2024 and April 27, 2024 were immaterial. Loss provisions are recorded in the "Accrued expenses" line item in our condensed consolidated balance sheets.
During the six months ended October 26, 2024, we recognized revenue of $ 52,024 related to our contract liabilities as of April 27, 2024.
Remaining performance obligations
As of October 26, 2024, the aggregate amount of the transaction price allocated to the remaining performance obligations was $ 301,525 . Remaining performance obligations related to product and service agreements as of October 26, 2024 were $ 235,982 and $ 65,543 , respectively. We expect approximately $ 240,423 of our remaining performance obligations to be recognized over the next 12 months, with the remainder recognized thereafter. Although remaining performance obligations reflect business that is considered to be legally binding, cancellations, deferrals or scope adjustments may occur. Any known project cancellations, revisions to project scope and cost, foreign currency exchange fluctuations, and project deferrals are reflected or excluded in the remaining performance obligation balance, as appropriate. The amount of revenue recognized associated with performance obligations satisfied in prior years during the six months ended October 26, 2024 and October 28, 2023 was immaterial.
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Note 5. Segment Reporting
The following table sets forth certain financial information for each of our five reporting segments for the periods indicated:
Three Months Ended Six Months Ended
October 26,
2024 October 28,
2023 October 26,
2024 October 28,
2023
Net sales:
Commercial $ 43,439 $ 42,453 $ 77,638 $ 89,336
Live Events 77,207 68,210 185,815 160,209
High School Park and Recreation 48,071 48,942 96,077 105,176
Transportation 21,478 20,243 43,968 41,612
International 18,136 19,521 30,921 35,567
208,331 199,369 434,419 431,900
Gross profit:
Commercial 11,138 7,231 18,733 20,000
Live Events 14,970 19,234 40,998 47,174
High School Park and Recreation 17,804 16,420 35,120 37,245
Transportation 8,672 6,780 16,421 13,869
International 3,279 4,534 4,289 7,058
55,863 54,199 115,561 125,346
Operating expenses:
Selling 14,704 14,653 30,340 27,582
General and administrative 15,550 10,889 27,273 20,488
Product design and development 9,839 9,221 19,462 17,624
40,093 34,763 77,075 65,694
Operating income 15,770 19,436 38,486 59,652
Nonoperating (expense) income:
Interest (expense) income, net 273 ( 1,326 ) 202 ( 2,207 )
Change in fair value of convertible note 10,304 ( 10,650 ) ( 11,286 ) ( 17,910 )
Other expense and debt issuance costs write-off, net ( 1,164 ) ( 1,303 ) ( 1,999 ) ( 5,282 )
Income before income taxes $ 25,183 $ 6,157 $ 25,403 $ 34,253
Depreciation and amortization:
Commercial $ 1,075 $ 1,070 $ 2,157 $ 2,112
Live Events 1,412 1,604 2,841 3,217
High School Park and Recreation 533 474 1,066 936
Transportation 205 174 407 342
International 550 572 1,112 1,138
Unallocated corporate depreciation and amortization 1,126 931 2,211 1,749
$ 4,901 $ 4,825 $ 9,794 $ 9,494
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No single geographic area comprises a material amount of our net sales or property and equipment, net of accumulated depreciation, other than the United States. The following table presents information about net sales and property and equipment, net of accumulated depreciation, in the United States and elsewhere:
Three Months Ended Six Months Ended
October 26,
2024 October 28,
2023 October 26,
2024 October 28,
2023
Net sales:
United States $ 184,438 $ 178,144 $ 391,657 $ 392,737
Outside United States 23,893 21,225 42,762 39,163
$ 208,331 $ 199,369 $ 434,419 $ 431,900
October 26,
2024 April 27,
2024
Property and equipment, net of accumulated depreciation:
United States $ 66,770 $ 64,332
Outside United States 7,045 7,420
$ 73,815 $ 71,752
We have numerous customers worldwide for sales of our products and services, and no customer accounted for 10 percent or more of net sales; therefore, we are not economically dependent on a limited number of customers for the sale of our products and services.
We have numerous raw material and component suppliers, and no supplier accounts for 10 percent or more of our cost of sales; however, we have a complex global supply chain subject to geopolitical and transportation risks and a number of single-source suppliers that could limit our supply or cause delays in obtaining raw materials and components needed in manufacturing.
Note 6. Goodwill
The changes in the carrying amount of goodwill related to each segment with a goodwill balance for the six months ended October 26, 2024 were as follows:
Commercial Transportation Total
Balance as of April 27, 2024 $ 3,188 $ 38 $ 3,226
Foreign currency translation ( 25 ) ( 7 ) ( 32 )
Balance as of October 26, 2024 $ 3,163 $ 31 $ 3,194
We perform an analysis of goodwill on an annual basis, and it is tested for impairment more frequently if events or changes in circumstances indicate that an asset might be impaired. Our annual analysis is performed during our third quarter of each fiscal year based on the goodwill amount as of the first business day of our third fiscal quarter.
Accumulated impairments to goodwill as of October 26, 2024 and April 27, 2024 was $ 4,576 .
Note 7. Financing Agreements
Long-term debt consists of the following:
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October 26,
2024 April 27,
2024
Mortgage $ 13,125 $ 13,875
Convertible note 25,000 25,000
Long-term debt, gross 38,125 38,875
Debt issuance costs, net ( 574 ) ( 761 )
Change in fair value of convertible note 27,836 16,550
Current portion ( 1,500 ) ( 1,500 )
Long-term debt, net $ 63,887 $ 53,164
Credit Agreements
On May 11, 2023, we closed on a $ 75,000 senior credit facility (the "Credit Facility"). The Credit Facility consists of a $ 60,000 asset-based revolving credit facility (the "ABL") maturing on May 11, 2026, which is secured by a first priority lien on the Company's assets, and a $ 15,000 delayed draw loan (the "Delayed Draw Loan") secured by a first priority mortgage on our Brookings, South Dakota real estate (the "Mortgage").
Under the ABL, certain factors can impact our borrowing capacity. As of October 26, 2024, our borrowing capacity was $ 40,758 , there were no borrowings outstanding, and there was $ 5,363 used to secure letters of credit outstanding. The interest rate on the ABL is set on a sliding scale based on the trailing 12-month fixed charge coverage and ranges from 2.5 to 3.5 percent over the standard overnight financing rate (SOFR).
The $ 15,000 Delayed Draw Loan was funded on July 7, 2023. It amortizes over 10 years and has monthly payments of $ 125 . The Delayed Draw Loan is subject to the terms of the Credit Agreement dated as of May 11, 2023 (the "Credit Agreement") and matures on May 11, 2026. The interest rate on the Delayed Draw Loan is set on a sliding scale based on the trailing 12-month fixed charge coverage ratio and ranges between 1.0 and 2.0 percent over the Commercial Bank Floating Rate (CBFR). The interest rate as of October 26, 2024 for Delayed Draw Loan was 9.5 percent.
Convertible Note
On May 11, 2023, we borrowed $ 25,000 in aggregate principal amount evidenced by the secured Convertible Note due May 11, 2027. Alta Fox Opportunities Fund, LP, as the holder (the "Holder") of the Convertible Note, has a second priority lien on assets securing the ABL facility and a first priority lien on substantially all of the other assets of the Company, excluding all real property.
Conversion Features
• The Convertible Note allows the Holder and any of the Holder’s permitted transferees, donees, pledgees, assignees or successors-in-interest (collectively, the “Selling Shareholders”) to convert all or any portion of the principal amount of the Convertible Note, together with any accrued and unpaid interest and any other unpaid amounts, including late charges, if any (together, the “Conversion Amount”), into shares of the Company’s common stock at an initial conversion price of $ 6.31 per share, subject to adjustment in accordance with the terms of the Convertible Note (the “Conversion Price”).
• The Company also has a forced conversion right, which is exercisable on the occurrence of certain conditions set forth in the Convertible Note, pursuant to which it can cause all or any portion of the outstanding and unpaid Conversion Amount to be converted into shares of common stock at the Conversion Price.
Additionally, if the Company fails other than by reason of a failure by the Holder to comply with its obligations, the Holder is permitted to cash payments from the Company until such conversion failure is cured.
Redemption Features
• If the Company were to have an "Event of Default", as defined by the Convertible Note, then the Holder may require the Company to redeem all or any portion of the Convertible Note.
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• If the Company has a "Change of Control", as defined by the Convertible Note, then the Holder is entitled to payment of the outstanding amount of the Convertible Note at the "Change in Control Redemption Price," as defined in the Convertible Note.
Interest
Interest accruing under the Convertible Note is payable, at the option of the Company, in either (i) cash or (ii) a combination of cash interest and capitalized interest; provided, however, that at least fifty percent (50%) of the interest paid on each interest date must be paid as cash interest. The Convertible Note accrues interest quarterly at an annual rate of 9.0 percent when interest is paid in cash or an annual rate of 10.0 percent if interest is paid in kind. Upon an event of default under the Convertible Note, the annual interest rate will increase to 12.0 percent. The annual rate of 9.0 percent was used to calculate the interest accrued as of October 26, 2024, as interest will be paid in cash.
We elected the fair value option to account for the Convertible Note as described in "Note 10. Fair Value Measurement" of the Notes to our Condensed Consolidated Financial Statements included in this Form 10-Q. The financial liability was initially measured at its issue-date fair value and is subsequently remeasured at fair value on a recurring basis at each reporting period date. We have elected to present the fair value and the accrued interest component separately in the condensed consolidated statements of operations. Therefore, interest will be recognized and accrued separately in interest expense, with changes in fair value of the Convertible Note presented in the "Change in fair value of convertible note" line item in our condensed consolidated statements of operations.
The changes in fair value of the Convertible Note during the six months ended October 26, 2024 are as follows:
Liability Component
(in thousands)
Balance as of April 27, 2024 $ 41,550
Redemption of convertible promissory note —
Fair value change recognized 11,286
Balance as of October 26, 2024 $ 52,836
The estimated fair value of the Convertible Note upon its issuance date of May 11, 2023 was computed using the binomial lattice model. Given the appreciation of the Company’s stock price since inception of the Convertible Note combined with our intent and expectation of settlement as soon as is feasible through exercise of its forced conversion right, we determined that the Monte Carlo simulation ("MCS") model was appropriately suited to determine the fair value of the Convertible Note as of October 26, 2024. Both models incorporate significant inputs that are not observable in the market and thus represents a Level 3 measurement.
We determined the fair value by using the following key assumptions in the MCS and binomial lattice model as of October 26, 2024 and April 27, 2024, respectively:
October 26,
2024 April 27,
2024
Risk-Free Rate (Annual) 4.04 % 4.78 %
Yield 15.81 % 16.28 %
Volatility (Annual) 55.00 % 40.00 %
Dividend Yield (Annual) — % — %
The Credit Agreement and the Convertible Note require a fixed charge coverage ratio of greater than 1.1 and include other customary non-financial covenants. As of October 26, 2024, we were in compliance with our financial covenants under the Credit Agreement and the Convertible Note.
Debt Issuance Costs
Debt issuance costs incurred and capitalized are amortized on a straight-line basis over the term of the associated debt agreement. If early principal payments or conversions occur, a proportional amount of unamortized debt issuance costs are expensed. As part of these financings, we capitalized $ 8,195 in debt issuance costs. During the six months ended
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October 28, 2023, due to the Convertible Note being accounted for at fair value, we expensed $ 3,353 of the related debt issuance costs, which is included in the "Other expense and debt issuance costs write-off, net" line item in our condensed consolidated statements of operations. During the six months ended October 26, 2024 and October 28, 2023, we amortized $ 807 and $ 744 , respectively, of debt issuance costs. The remaining debt issuance costs of $ 2,484 are being amortized over the remaining two-year term of the Credit Facility.
Future Maturities
Aggregate contractual maturities of debt in future fiscal years are as follows:
Fiscal years ending Amount
Remainder of 2025 $ 750
2026 1,500
2027 10,875
2028 25,000
2029 —
Total debt $ 38,125
Note 8. Commitments and Contingencies
Litigation: We are a party to legal proceedings and claims which arise during the ordinary course of business. We review our legal proceedings and claims, regulatory reviews and inspections, and other legal matters on an ongoing basis and follow appropriate accounting guidance when making accrual and disclosure decisions. We establish accruals for those contingencies when the incurrence of a loss is probable and can be reasonably estimated, and we disclose the amount accrued and the amount of a reasonably possible loss in excess of the amount accrued if such disclosure is necessary for our financial statements to not be misleading. We do not record an accrual when the likelihood of loss being incurred is probable, but the amount cannot be reasonably estimated, or when the loss is believed to be only reasonably possible or remote, although disclosures will be made for material matters as required by ASC 450-20, Contingencies - Loss Contingencies . Our assessment of whether a loss is reasonably possible or probable is based on our assessment and consultation with legal counsel regarding the ultimate outcome of the matter following all appeals.
For other unresolved legal proceedings or claims, we do not believe there is a reasonable probability that any material loss would be incurred. Accordingly, no material accrual or disclosure of a potential range of loss has been made related to these matters. We do not expect the ultimate liability of these unresolved legal proceedings or claims to have a material effect on our financial position, liquidity, or capital resources.
Warranties: Changes in our warranty obligation for the six months ended October 26, 2024 consisted of the following:
October 26,
2024
Balance as of April 27, 2024 $ 37,928
Warranties issued during the period 7,779
Settlements made during the period ( 7,451 )
Changes in accrued warranty obligations for pre-existing warranties during the period, including expirations 132
Balance as of October 26, 2024 $ 38,388
Performance guarantees: We have entered into standby letters of credit, bank guarantees and surety bonds with financial institutions relating to the guarantee of our future performance on contracts, primarily construction-type contracts. As of October 26, 2024, we had outstanding letters of credit and surety bonds in the amount of $ 5,363 and $ 17,567 , respectively. Performance guarantees are issued to certain customers to guarantee the operation and installation of the equipment and our ability to complete a contract. These performance guarantees have various terms but generally have a term of one year . We enter into written agreements with our customers, and those agreements often contain indemnification provisions that
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require us to make the customer whole if certain acts or omissions by us cause the customer financial loss. We make efforts to negotiate reasonable caps and limitations on the recovery of such damages. As of October 26, 2024, we were not aware of any material indemnification claims.
Note 9. Income Taxes
Our effective tax rates for the three and six months ended October 26, 2024, were 15.0 percent and 35.2 percent, respectively. Income before tax includes the impacts of the Convertible Note fair value adjustment, which is not deductible, in proportion to the period's increase in pre-tax income. The effective tax rate for the three and six months ended October 28, 2023 were 64.8 percent and 37.6 percent, respectively, and were driven by the increase in the fair value adjustment to expense.
We operate both domestically and internationally and, as of October 26, 2024, the undistributed earnings of our foreign subsidiaries were considered to be reinvested indefinitely. Additionally, as of October 26, 2024, we had $ 492 of unrecognized tax benefits which would reduce our effective tax rate if recognized.
Note 10. Fair Value Measurement
The following table sets forth by level within the fair value hierarchy our financial assets and liabilities that were accounted for at fair value on a recurring basis as of October 26, 2024 and April 27, 2024 according to the valuation techniques we used to determine their fair values. There have been no transfers of assets or liabilities among the fair value hierarchies presented.
Fair Value Measurements
Level 1 Level 2 Level 3 Total
Balance as of October 26, 2024
Cash and cash equivalents $ 134,352 $ — $ — $ 134,352
Restricted cash — — — —
Convertible note — — ( 52,836 ) ( 52,836 )
$ 134,352 $ — $ ( 52,836 ) $ 81,516
Balance as of April 27, 2024
Cash and cash equivalents $ 81,299 $ — $ — $ 81,299
Restricted cash 379 — — 379
Convertible note — — ( 41,550 ) ( 41,550 )
$ 81,678 $ — $ ( 41,550 ) $ 40,128
We elected to value the Convertible Note at fair value in accordance with ASC 825-10-15-4(a) because of the embedded derivatives contained in the Convertible Note. The fair value of the Convertible Note as of April 27, 2024 was estimated using the binomial lattice model. The fair value of the Convertible Note as of October 26, 2024 was estimated using the MCS. Both models allow for the examination of the value to a holder and understanding the investment decision that would occur at each node.
The fair value of the Convertible Note entered into during the first quarter of fiscal 2024 was classified as Level 3 because certain inputs for the valuation were not readily determinable or observable.
For additional information, see our Annual Report on Form 10-K for the fiscal year ended April 27, 2024 for the methods and assumptions used to estimate the fair value of each class of financial instrument. See "Note 7. Financing Agreements" for the methods and assumptions used to estimate the fair value.
Note 11. Share Repurchase Program
On June 17, 2016, our Board of Directors approved a stock repurchase program under which we may purchase up to $ 40,000 of the Company's outstanding shares of common stock. Under this program, we may repurchase shares from time to time in open market transactions and in privately negotiated transactions based on business, market, applicable legal requirements and other considerations. The repurchase program does not require the repurchase of a specific number of shares and may be terminated at any time.
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In April 2020, the Board had suspended the program. On December 2, 2021, the Board of Directors of Daktronics voted to reauthorize the stock repurchase program.
During the six months ended October 26, 2024, we repurchased no shares of common stock. As of October 26, 2024, we had $ 29,355 of remaining capacity under our current share repurchase program.
Note 12. Related Party Transactions
The Company's Board of Directors has adopted a written policy and procedures with respect to related party transactions, which the Audit Committee oversees. Under the policy, a "related party transaction" is generally defined as a transaction, arrangement, or relationship in which the Company was, is or will be a participant; the amount involved exceeds $ 120 ; and in which any "related person" had, has or will have a direct or indirect material interest. The policy generally defines a "related person" as a Director, executive officer or beneficial owner of more than five percent of any class of our voting securities and any immediate family member of any of the foregoing persons.
The Audit Committee reviews and, if appropriate, approves related party transactions, including certain transactions which are deemed to be pre-approved under the policy. On an annual basis, the Audit Committee reviews any previously approved related party transaction that is ongoing.
As reported in Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the section entitled “Liquidity and Capital Resources” of our Annual Report on Form 10-K for the fiscal year ended April 27, 2024, effective on May 11, 2023, the Company entered into the Securities Purchase Agreement with the Holder of the Convertible Note. Under the Securities Purchase Agreement, the Company sold and issued to the Holder the Convertible Note in exchange for the payment by the Holder to the Company of $ 25,000 . As of May 11, 2023, and based on Amendment No. 2 to the Schedule 13D filed by the Holder and its affiliates named therein on May 15, 2023 with the SEC, the Holder and its affiliates beneficially owned 4,768 shares of common stock of the Company, representing 9.99 percent of the Company’s common stock, causing the Holder to be a “related party” of the Company under the Company’s written policy and procedures and the applicable definitions under the Securities Act of 1933. The Securities Purchase Agreement, the Convertible Note, the Pledge and Security Agreement dated as of May 11, 2023 by and between the Holder and the Company, and the Registration Rights Agreement were approved in advance of their execution by the Company’s Strategy and Financing Review Committee, the members of which include all members of the Company’s Audit Committee.
Since May 11, 2023, the largest aggregate amount outstanding under the Convertible Note was $ 25,563 , consisting of $ 25,000 of principal and $ 563 of interest. In the first six months of fiscal 2025, we made interest payments of $ 1,125 under the Convertible Note.
The description of the Securities Purchase Agreement, the Convertible Note, the Pledge and Security Agreement, and the Registration Rights Agreement dated as of May 11, 2023 by and between the Holder and the Company and their respective terms set forth in Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the section entitled “Liquidity and Capital Resources” of the Company's Annual Report on Form 10-K for the fiscal year ended April 27, 2024 is hereby incorporated by reference into this Report. In addition, the Company was a party to the Standstill and Voting Agreement dated as of March 19, 2023 with Alta Fox Management, LLC and Connor Haley (the “Standstill Agreement”), who are affiliates of the Holder, which expired in accordance with its terms on September 5, 2024.
As described in Amendment No. 3 (“Amendment No. 3”) to the Schedule 13D filed by the Holder and its affiliates named therein on June 9, 2023 with the SEC, and based on other information provided by the Holder, the following persons may be deemed to be beneficial owners of the shares of the Company’s common stock beneficially owned by the Holder: Alta Fox GenPar, LP, as the general partner of Alta Fox Opportunities Fund, LP; Alta Fox Equity, LLC, as the general partner of Alta Fox GenPar, LP; Alta Fox Capital Management, LLC, as the investment manager of Alta Fox Opportunities Fund, LP; and P. Connor Haley, as the sole owner, member and manager of each of Alta Fox Capital Management, LLC and Alta Fox Equity LLC.
On June 7, 2023, the Company received from the Holder a written notice of a decrease in the “Percentage Cap” (as such term is defined in the Convertible Note) from 9.99 percent to 4.99 percent, and on October 21, 2024, the Company received from the Holder a written notice to further decrease the Percentage Cap to 3.00 percent, and on November 25, 2024, the Company received from the Holder a written notice to increase the Percentage Cap to 14.99 percent. Each decrease became
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effective immediately upon the Company’s receipt of such written notice and any increase becomes effective 61 days after receipt of such written notice. The Percentage Cap generally represents the maximum percentage of shares of the Company’s common stock the Holder may own. In Amendment No. 3, the Holder and its affiliates identified in Amendment No. 3 owned 2,293 shares of common stock on June 9, 2023, representing 4.99 percent of the common stock of the Company, meaning the Holder and its affiliates the were no longer “related parties” of the Company under the Company’s written policy and procedures and the applicable definitions under the Securities Act of 1933. However, according to information provided by the Holder to the Company in November 2024, the Holder owns 1,923 shares of the Company’s common stock. With these shares, along with the 3,962 shares subject to the Convertible Note, the Holder beneficially owns 11.15 percent of the Company’s common stock. This percentage assumes all of the shares subject to the Convertible Note are outstanding and thus are added to the denominator in determining the percentage. Thus, the Holder is again subject to the Company’s policy and procedures with respect to related party transactions administered by the Audit Committee.
During the first six months of fiscal 2024, the Company and the South Dakota Board of Regents entered into a contract for a video display system for Dakota State University. The amount of the contract was $ 150 . A member of the Company's Board of Directors is the President of Dakota State University.
See "Note 2. Investments in Affiliates" for further details of related party transactions with our investments in the Affiliate Notes issued by our affiliates.
Note 13. Subsequent Events
On November 11, 2024, the Company issued notice to the Holder to force the conversion of $ 7.0 million of the principal balance on December 3, 2024 of the Convertible Note at the conversion price of $ 6.31 per share into 1,109 common shares. We will issue the shares upon the Holder’s indicating the ability to take delivery of the shares under the maximum ownership provisions of the Convertible Note. In addition, on November 25, 2024, the Company received from the Holder a written notice to increase the Percentage Cap to 14.99 percent. This increase from the in-effect 3.00 percent maximum ownership takes effect 61 days after receipt of notice. See "Note 12. Related Party Transactions" and "Note 7. Financing Agreements" for further information of the Convertible Note.
Effective on November 19, 2024, the Board approved a Second Amendment to Rights Agreement, dated as of November 19, 2024 (the "Second Amendment "). The Second Amendment amends the Rights Agreements dated as of November 16, 2018 (the "Original Rights Agreement") between the Company and the Rights Agent, as amended by the First Amendment to Rights Agreement, dated as of November 19, 2021 (the "First Amendment," and collectively with the Original Right Agreement and the Second Amendment, the "Rights Agreement"). The Second Amendment extends the “Final Expiration Date” (as that term is defined in the Rights Agreement) of the rights (the “Rights”) from the close of business on November 19, 2024 to the close of business on November 19, 2025. The Second Amendment also changes the “Exercise Price” (as that term is defined in the Rights Agreement) to $ 40.00 per Right.The Second Amendment provides for the addition of the defined terms “Triggering Percentage,” which is defined to mean 15.00 percent, and “13G Triggering Percentage,” which is defined to mean 20.00 percent.
The terms of the Rights are more fully described in Item 1.01 of the Company's Current Report 8-K filed with the Securities and Exchange Commission on November 19, 2024, including the First Amendment filed as Exhibit 4.3 to such Current Report on Form 8-K.
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.